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Google Tax in India | A Complete guide on Equalisation Levy

The Google Tax or Amazon Tax or Facebook Tax is the new tax released in the Union Budget 2016. If you are receiving specified services from a foreign company like facebook or Google you need to deduct Google Tax. Here is all about Equalisation Levy, Google Tax Rates, etc. Read the complete article to know who has to pay it and what happens if not paid.

What is Google Tax India or Equalisation Levy?

Finance Minister Arun Jaitley has introduced the Equalisation Levy in the Union Budget 2016. CBDT (Central Board of Direct Taxes) has notified rules regarding Equalization Levy (simply called as Google Tax or Amazon Tax or Facebook Tax) and said the tax came into effect from 1st June 2016.

This rule is applicable when the payment is made to the company (or companies) that don’t have a permanent establishment in India. This Google tax is applicable only when the payment is made to avail certain B2B (Business-to-Business) services from these technology companies. So, equalisation levy or Google tax will have to be deducted by the business or person availing the services from these companies & deposit the tax collected to authorized banks.

In February 2016, the Committee on Taxation of E-commerce, set up by the CBDT (Central Board of Direct Taxes) had submitted its report to the government suggesting an equalisation levy of 6 to 8% on the amount paid to non-residents by resident Indian for specified services. Those services are mentioned below.

Products and Services

There are some specified services that fall under this rule. Those services and products could range from online advertisements or online advertising space to, creation, design, maintenance or hosting of websites, etc.

Google Tax Rate

This tax is levied at the rate of 6% for any payment that exceeds Rs. 1,00,000 a year from an Indian company to a non-resident for providing specified services.

Reason to introduce the Google tax in India

The Google tax is mainly aimed at technology companies that make money through online advertisement services. Their revenue is mostly routed to a tax haven country. OECD (Organization for Economic Cooperation and Development) has suggested this Equalisation Levy as a part of the global base erosion and profit-shifting initiatives. But India became the 1st country to adopt this equalisation levy to tax the digital economy.

In detail, it was aimed at indirectly taxing global Internet firms who make money from Indian online advertisers but they are not registered in the country and don’t fall under the purview of taxation. For this reason, the government has found a way to indirectly tax companies such as Google and Facebook. Instead of imposing a straight tax on digital advertising platforms, the govt has come up with an “Equalisation Levy” of 6% on the fees that advertisers pay. The ‘equalisation’ happens because the government is intentionally making companies such as Facebook and Google pay for the money they make from the local advertisers.

Also, as per some experts, the rate of Google Tax in India (equalisation levy) may go up further in future.

Who will this Google Tax or Amazon Tax impact?

This equalisation levy will impact small & medium size businesses in India that use Facebook or Google for online advertising and marketing promotions. This is because the said companies like Facebook and Google has the strong presence in the advertisement space and are unlikely to take a hit on their revenues. If you are liable to pay the amount to a foreign company to provide advertising services, then you have to withhold 6% of that amount, and that withheld amount should be paid to the government.

Example:

Let us assume that Mr. Song Joong Ki runs a company and is liable to pay Rs. 5,00,000 to a foreign company to advertise with them.

With the new tax in place, Mr. Song Joong Ki will have to withhold 6% of the amount i.e., Rs. 30,000 and pay the balance Rs. 4,70,000 to the foreign company for its services. The withheld amount will be paid to the government.

If the foreign company hike the advertising rate taking the new Google Tax India into account, then the Indian business owner, has to bear the loss.

What happens if an Indian company fails to deduct the Equalisation Levy?

As per the Union Budget, if any Indian business company or owner fails to deduct the Google Tax or equalisation levy or doesn’t deposit the same with the government, then that expense will be calculated as a taxable profit of the Indian company. i.e., the company will not be allowed to consider those expenses in calculating taxable profits. This will cause the increase of taxable income, thereby raising the company’s tax liability.

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